A Reserve Bank of India (RBI) panel has recommended raising the cap on promoter shareholding in private sector banks to 26 per cent of the paid up equity after 15 years of operation. The panel has also proposed that large corporates may be permitted to promote banks after necessary amendments to the Banking Regulations Act.
"The cap on promoters' stake in the long run (15 years) may be raised from the current level of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank," RBI Internal Working Group (IWG) said in its report.
The IWG, constituted to review corporate structure for Indian private sector banks, has also suggested the conversion of big non-banking finance companies (NBFCs) into banks. "Well run large Non-banking Finance Companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard," the apex bank said.
The committee, led by PK Mohanty, has also proposed converting of payments banks into a small finance bank. For this, the track record of 3 years of experience as payments bank may be considered as sufficient, it said.
As per the report, small finance banks and payments banks may be listed within '6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks' or '10 years from the date of commencement of operations', whichever is earlier.
The panel has recommended raising minimum initial capital requirement for licensing new banks from Rs 500 crore to Rs 1000 crore for universal banks, and from Rs 200 crore to Rs 300 crore for small finance banks.
The panel also suggested that Non-operative Financial Holding Company (NOFHC) should continue to be the preferred structure for all new licences to be issued for universal banks. However, it should be mandatory only in cases where the individual promoters/promoting entities/converting entities have other group entities.
"While banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within 5 years from announcement of tax-neutrality," it said.
The RBI had constituted an IWG on June 12, 2020 to review extant ownership guidelines and corporate structure for Indian private sector banks. The report is placed on the RBI website for comments and suggestions of stakeholders and public. Comments on the report may be submitted by January 15, 2021 through email.
The Reserve Bank, the report said, may take steps to ensure harmonisation and uniformity in different licensing guidelines to the extent possible. Also, whenever new licensing guidelines are issued, if new rules are more relaxed, the benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks, it added.
The report noted that the contribution of private sector banks towards deposits and advances of Scheduled Commercial Banks has increased from 12.63 per cent and 12.56 per cent in 2000 to 30.35 per cent and 36.04 per cent, respectively, in 2020.
The PSBs have been consistently losing market share to the private banks, a process which has markedly hastened over the past five years. The primary reason for this has been the beleaguered balance sheets of PSBs on account of the non-performing asset (NPA) overhang of post-global financial crisis years.
Capital has not been a problem for private banks. During the last five years, private banks have been able to raise an aggregate capital of Rs 1,15,328 crore from the market as compared to Rs 70,823 by PSBs, which needed a massive infusion of another Rs 3,18,997 crore from the government.
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